July 15, 2023
We hope this letter finds you well. The global economy continued to recover during this period, with several sectors showing strong signs of improvement. Technology stocks have performed exceptionally well.
While we are encouraged by the recent performance, it is important to note that the markets are inherently unpredictable and can be subject to unexpected fluctuations.
Unlike the better-known Dow, which comprises just 30 companies, the S&P 500, as its name implies, is made up of 500 firms and is considered a better benchmark of the overall stock market.
From its early 2022 peak to its most recent bottom last October, the S&P 500 shed 25% of its value (St. Louis Federal Reserve S&P 500 data). It met the standard definition of a bear market.
Just as a 20% peak-to-trough decline defines a bear market, a 20% rise from the most recent low marks the start of a new bull market, at least that is the technical definition.
Since the mid-October low, the S&P 500 has advanced 24.4%.
Gaining the upper hand
What’s behind the advance? There has been no shortage of anxieties that might trip up investors, including a possible recession, still-high inflation, an ongoing war in Ukraine, and this year’s banking crisis.
Despite the widespread anticipation of an economic downturn, it has yet to materialize, and employment opportunities continue to expand.
The Federal Reserve is considering raising interest rates further, but the magnitude of these increases has significantly decreased this year.
This year’s progress in the stock market can be primarily attributed to the slower pace of rate hikes and the growth of the economy. Furthermore, the fascination with artificial intelligence (AI) has significantly boosted the performance of technology stocks.
Living in a post-pandemic world
Forecasting trends is a challenging task for economists and analysts.
Despite the use of complex economic models, the post-pandemic world poses unique difficulties.
The shutdown and reopening of the economy, combined with an unprecedented $5 trillion in fiscal stimulus, have created economic distortions that are not fully accounted for in these models.
At the onset of the pandemic, the $2 trillion CARES Act and quick action by the Fed were crucial in preventing the economy from plummeting into an economic black hole.
But how do forecasters incorporate another $3 trillion in stimulus that was authorized between late December 2020 and March 2021?
How do the experts account for the shuttering and the reopening of the economy, pent-up demand, and the shift away from goods and toward services, travel, and entertainment?
Talk to some retailers, and you would think we were on the cusp of a recession. But the airlines can’t keep up with demand and can’t seem to raise prices fast enough.
It’s a new challenge for the Fed, economists, and investors, especially short-term traders who bet on daily, weekly, or monthly market moves.
However, if one considers the accompanying charts and compares the indicators before the 2007 recession and current conditions, one can see differences and similarities. The most telling similarity is where the MoC shown in red is nearing baseline indicating recessionary conditions exist. The most important point on the BaR is the MoC, the mean of coordinates, which is the average of all plotted points.
If you have not seen enough graphics yet the one below shows the makeup of the S&P 500. With $7.1 trillion in assets, it makes up nearly 80% of the market cap on the US exchanges. This graphic from Visual Capitalist represents all the companies and their relative size by sector.
In addition to our investment strategies, we also want to take the opportunity to remind you of the importance of regular portfolio reviews and effective communication. If you have any changes in your financial circumstances, risk tolerance, or investment objectives, we encourage you to reach out to us so that we can tailor your portfolio accordingly.
As always, we are here to address any questions or concerns you may have. We strongly believe in the value of partnership and open communication, and we are committed to ensuring that you feel confident and informed about the performance of your investments.
SVWA will continue to be cautiously optimistic while managing portfolio risk.
Personal Notes @ SVWA:
Tracy and Roberta have been playing more golf, so far not much improvement but they are hopeful. They will be attending the LPGA in Monterey the first few days of July, determined to get a few pointers.
Scott Ponder & Erin spent most free time in the late Spring working in the garden.
Scott Yang went to the NorCal FPA conference in San Francisco and was able to attend educational breakout sessions around financial planning and investments and heard some good keynote speakers. It was nice to connect with the financial planning community in person again and see old friends and acquaintances.
Lisa visited her best friend in Cleveland, Ohio; they visited an Amish country to feed farm animals and eat a lot of cheese. Additionally, her top 3 favorite books this quarter are The Silent Patient by Alex Michaelides, Lessons in Chemistry by Bonnie Garmus, and and The Seven Husbands of Evelyn Hugo by Taylor Jenkins Reid.
Mo and her family are enjoying the abundance and flexibility of summer. Mo is experimenting with seasonal fruit for her homemade Kombucha batches.
Charles enjoyed a trip to Maui with his significant other and her family for the first time. They enjoyed scenic views, great poke, and were able to drive through Road to Hana and visit Haleakalā National Park. Charles also finished his CFP education requirement and is studying to take his CFP exam in Novembe
Katelyn finished her 2nd year at SJSU and is beyond happy to have reached summer. She's been spending lots of time with family, working at farmer's markets, and has also taken up solo hiking.
We trust you've found this review to be educational and helpful. If you have any questions or want to discuss any matters, please feel free to call us.
As always, we are honored and humbled that you have allowed us to serve as your financial advisor.
The Silicon Valley Wealth Advisors Team
Tracy Lasecke, CFP® Scott Yang, CPA, CFP® Scott Ponder, MBA, CFP®
Monique Ruiz Lisa Ozaki, CFP® Charles Tran Katelyn Yang
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